BK Doesn't Eliminate Liability for Deaths

Once upon a time, Supreme Court Associate Justice Neil Gorsuch wrote a dissent in what became known as "the Frozen Trucker Case."? Gorsuch's dissent held that, because the driver left this truck, rather than freeze to death, he was rightfully fired. TransAm Trucking, Inc. v. Administrative Review Board, 833 F.3d 1206 (10th Cir. 2016),

But perhaps Justice Gorsuch is moderating his views, at least when it comes to approving or disapproving the Purdue Pharma bankruptcy reorganization.?

Justice Gorsuch laid out the stakes at the beginnning of his majority opinion in Harrington v. Purdue Pharma L.P. et al., No. 23-124, Decided June 27, 2024:

"Between 1999 and 2019, approximately 247,000 people in the United States died from prescription-opioid overdoses. Respondent PurduePharma sits at the center of that crisis. Owned and controlled by theSackler family, Purdue began marketing OxyContin, an opioid prescription pain reliever, in the mid-1990s. After Purdue earned billions of dollars in sales on the drug, in 2007 one of its affiliates pleaded guilty to a federal felony for misbranding OxyContin as a less-addictive, less-abusable alternative to other pain medications. Thousands of lawsuits followed. Fearful that the litigation would eventually impact them directly, the Sacklers initiated a “milking program,” withdrawing from Purdue approximately $11 billion—roughly 75% of thefirm’s total assets—over the next decade. [para.] Those withdrawals left Purdue in a significantly weakened financial state. And in 2019, Purdue filed for Chapter 11 bankruptcy. During that process, the Sacklers proposed to return approximately $4.3 billion to Purdue’s bankruptcy estate. In exchange, the Sackers sought a judicial order releasing the family from all opioid-related claims andenjoining victims from bringing such claims against them in the future. The bankruptcy court approved Purdue’s proposed reorganization plan, including its provisions concerning the Sackler discharge. But the district court vacated that decision, holding that nothing in the law authorizes bankruptcy courts to extinguish claims against third parties like the Sacklers, without the claimants’ consent. A divided panel of the Second Circuit reversed the district court and revived the bankruptcy court’s order approving a modified reorganization plan."

[Bold and italics added]

Thus, the reasonable question to ask is, may a bankruptcy settlement seek to eliminate civil liability for 1) the apparent alter egos of the company [even if there was no formal alter ego ruling, the Sacklers were putting a portion of their personal fortune into the settlement, having earlier rendered the company insolvent by "milking"], where 2) the result of the company's malfeasance was 247,000 deaths, over the relatively short period of 20 years; and 3) the funders of the settlement are not debtors before the bankruptcy court.

For Justice Gorsuch Chief Justice Roberts, and Associate Justices Jackson, Alito, Thomas, and Barrett, the answer was clearly "no," particularly where there were thousands of creditors who objected to the proposed opioid settlement. In the words of the applicable statute, this was a "non-consensual third party release," which would absolve the Sacklers of liability even though they were not the debtors. Only in the case of asbestos litigation did Congress specifically allow for the mandatory release of third parties in a potential massive injury or death situation. Judge Gorsuch reasoned that, should Congress carve out another exception, such as for opioids, the court would consider that. Without such an exception, the Court was not bound to enforce such a settlement.

Furthermore, although the Court did not discuss it, Chapter 11 of Bankruptcy Code does not allow a discharge for debts that stem from malicious or fraudulent behavior. ?

The mass death associated with opioids, and the idea that a non-debtor would escape liability for knowingly flooding communities with them, are repugnant.?

The dissent by Justice Kavanaugh cites to no mass death situation, in which non-debtor private entities fund a bankruptcy settlement for their company, and thereby buy themselves relief from civil liability. ?

Pursuant to 11 USC Sec. 1123(b)(3)? a bankruptcy plan of reorganization can release claims against non-debtors. But, given the evidence of the Sackler's knowledge of the effects of Purdue Pharma's opioids, approval of the plan would establish the principle that malicious non-debtors (and potentially, malicious alter egos) could escape liability for mass death caused by their products (no one suggests that this is an exaggeration) through the Bankruptcy Code. This would be shocking result, the equivalent of turning a blind eye to tens of thousands of frozen truckers.

The Bankruptcy Code is not a place to resolve such a moral and potentially criminal question. As Judge Gorsuch points out, in such a situation, Congress should enter the fray, and pass a law that resolves the question, as it did with asbestos claims.

As the Hon. Joy Campbell, Attorney General of Massachusetts, points out, "The Sacklers must and will be held responsible, and, in the wake of this decision, we will use every power available to us to make sure that occurs.? My office will continue our nation-leading work to obtain the funding that is desperately needed to save lives, restore communities and fight the opioid epidemic in the Commonwealth.”

Courts, law enforcement, and Congress must work together to craft a solution that brings the maximum relief to the families of opioid victims. This, unfortunately, cannot be the province of bankruptcy court.

(The above photo is from the memorial for Justice Ruth Bader Ginsburg)

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